The Cash Collateral Letter of Credit is utilized when a party requires a letter of credit but needs to provide cash security to the issuing bank rather than relying on a credit facility or other form of security. This arrangement is common in situations where the applicant may have limited credit history, requires a letter of credit quickly, or where the bank prefers cash collateral due to risk considerations. The document details the handling of cash collateral, creation of security interests under Canadian law, conditions for drawings under the letter of credit, and release mechanisms. It incorporates requirements from the Bank Act (Canada), provincial Personal Property Security Acts, and international banking practices, making it suitable for both domestic Canadian transactions and cross-border arrangements where Canadian law governs the collateral arrangement.
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1. Parties: Identification of the Bank (LC issuer), the Applicant (providing cash collateral), and the Beneficiary
2. Background: Context of the arrangement, including reference to the underlying transaction necessitating the LC
3. Definitions: Key terms including 'Cash Collateral', 'Letter of Credit', 'Drawing', 'Security Interest', etc.
4. Letter of Credit Terms: Specific terms of the LC including amount, expiry date, and conditions for drawing
5. Cash Collateral Requirements: Amount of cash collateral, timing of deposit, and maintenance requirements
6. Security Interest and Control: Creation and perfection of security interest in the cash collateral
7. Use and Investment of Cash Collateral: Terms governing how the cash collateral may be held and invested
8. Drawing and Reimbursement: Process for LC drawings and application of cash collateral
9. Release Conditions: Conditions for release of cash collateral
10. Representations and Warranties: Standard representations regarding authority, ownership of collateral, etc.
11. Events of Default: Circumstances constituting default and consequences
12. Governing Law and Jurisdiction: Specification of Canadian law and jurisdiction
1. Interest on Cash Collateral: Terms for payment of interest on cash collateral - included when parties agree to interest payments
2. Tax Provisions: Provisions dealing with tax implications - included when tax considerations are material
3. Currency Provisions: Provisions for handling multiple currencies - included for cross-border transactions
4. Additional Collateral: Provisions for requiring additional collateral - included when variable LC amounts are contemplated
5. Set-off Rights: Bank's right to set off against other accounts - included when requested by the bank
6. Assignment: Rights to assign the LC or cash collateral - included when assignment might be contemplated
1. Form of Letter of Credit: Template or actual LC to be issued
2. Cash Collateral Account Details: Specific account information and control arrangements
3. Drawing Certificate Form: Standard form for making drawings under the LC
4. Authorized Signatories: List of persons authorized to act under the agreement
5. Fee Schedule: Details of any fees charged by the bank
Relevant legal definitions
Clauses
Relevant Industries
Banking & Financial Services
International Trade
Construction
Energy
Infrastructure
Manufacturing
Mining
Real Estate
Retail
Transportation & Logistics
Telecommunications
Relevant Teams
Treasury
Finance
Legal
Risk Management
Trade Finance
Corporate Banking
Commercial
Compliance
Credit
Operations
Relevant Roles
Treasury Manager
Chief Financial Officer
Finance Director
Trade Finance Manager
Credit Manager
Bank Relationship Manager
Legal Counsel
Commercial Director
Risk Manager
Documentary Credits Specialist
Collateral Manager
Corporate Banking Officer
Trade Finance Operations Manager
Compliance Officer
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